What are you doing in the next 60 minutes?
If your livelihood engages you in the multifamily business community, one might guess your next hour will focus on doing what you do to improve outcomes for your firm or organization. As an established player in the residential rental development, property management, and construction landscape in the United States, odds are you’ll be able to use the next 60 minutes to pursue better performance over the next three to five years, as fundamental demand continues to buoy the multifamily market and inspire confidence.
Why that matters is important. Healthy private-sector developers, property managers, owners, and investors are critical to the housing needs of 39 million Americans who must or choose to rent their home.
The multifamily housing market will very likely continue to grow between now and 2021 or 2022, and with it, the strong chance that currently healthy firms and organizations will seize the opportunity to prosper as well. The prevailing view of respondents—three out of five, to be exact—to a 2017 industry survey published by MFE parent company Hanley Wood, sponsored by Freddie Mac, and conducted by The Farnsworth Group is that the multifamily tide, with some ebbs and flows, will continue to rise.
And yet, even as that tide continues to rise—and with it, the thousands of firms that will thrive as fundamental demographic and economic demand keeps gathering momentum and we put more and more distance between ourselves and the Great Recession—an accompanying uneasiness grows as well.
It comes back to this question of what you’re doing in the next 60 minutes.
If everybody keeps working at the same level of design, development, investment, planning, construction, and marketing, the business ecosystem that makes up multifamily will deliver 26 new apartment units in that one-hour period. Those 26 completions per hour add up to the 225,000 units annually the ecosystem has completed, on average, over the past five-plus years.
But that isn’t enough. That 26 needs to be 37. That’s right: If multifamily’s ecosystem could complete 42% more new units per hour, it would begin to keep pace with America’s growing demand for viable rental housing.
For, what we’ve learned in the past five years, as economic recovery has shone down on some and left a growing universe of others in a dark, immobilized pool of people stuck in a time warp of 2008 or so, is there’s housing demand and there’s housing demand.
One kind of economic demand the multifamily ecosystem has become highly proficient and hyperbolically active in meeting is fueled by demographic and household patterns of the economically mobile, educationally accomplished, professionally set, socially enfranchised percentage of the population.
Another kind of demand, running as housing’s parallel reality, is made up of people whose wages fall short of what it takes to find apartments within their means.
“We have an affordable housing crisis. In the rental housing space, that crisis is very acute,” says David Brickman, executive vice president and head of the multifamily business for Freddie Mac. “People’s income levels aren’t in line with the cost of producing new housing.”
Is the multifamily ecosystem confident it can add 11 units an hour to help begin to keep pace with both streams of demand, and do that through the year 2030, as the National Apartment Association and the National Multifamily Housing Council suggest are necessary?
Unfortunately, the answer is no. The costs—including the expense in time, talent, and dollars—to develop and build is too high. More than four in 10 of our respondents are either “slightly or significantly less optimistic” about being able to deliver more affordable communities.
But the affordable housing industry’s close-knit network of lenders, government agencies, nonprofits, and syndicators offers a number of options for combating rising costs, including housing tax credits for eligible developments, financing programs for mixed-income and green projects, and grants and equity investments for the rehabilitation of distressed properties, to name just a few.
Only if people begin to change what they do in the next 60 minutes will the prospect of solving the affordable rental housing challenge begin to change.